NEWSMAKER-Ex-Rothschild banker Yao faces tough Alibaba IPO test

HONG KONG, April 30 (Reuters) - As Alibaba.com prepared for its Hong Kong IPO in late 2007, details of the deal emerged in local media, much to the frustration of Michael Yao, the company’s top financial adviser.

Yao, then at Rothschild, summoned bankers and others working on the deal to a meeting to remind them of the confidentiality agreements they had signed. “He read the riot act to everyone there,” said a person who was at that meeting, telling them: “If anyone does anything, I’ll make sure to find out.”

“He’s very soft spoken and easy going, but would act like el capo (boss) sometimes, putting the bankers in order,” the person added.

Seven years on, Yao is now guiding China’s e-commerce giant Alibaba Group Holding Ltd IPO-ALIB.N through a planned U.S. listing, expected to top Facebook Inc’s $16 billion IPO as the biggest technology listing.

The big change for Yao is that he is now leading from inside, having left Rothschild to join Alibaba.

Otherwise, there’s a sense of deja vu. Yao is again closely guarding the IPO process, keeping a tight control of an issue that could pay out an estimated $225 million in a bumper fee day for underwriters working on the deal.

At a March 25 meeting in Hong Kong, led by Yao, Alibaba kept most details secret until an hour before the scheduled event - to keep prying media at bay and avoid regulatory scrutiny from the U.S. Securities and Exchange Commission. Some of those invited were driven to the venue without being told where they were going. Others arrived at the exclusive Aberdeen Marina Club in the south of Hong Kong’s island to assemble in a room booked under a secret name, to avoid linking it to Alibaba, said people who were at the meeting.

“When all that becomes so public ... the company is forced to take all sorts of measures to try and avoid accidentally tripping any regulatory or legal issues,” said a person familiar with the IPO process. “It’s not so much that the company is so secretive, it’s just really more about U.S. regulations and legal issues than anything else.”

DELICATE JOB

Yao, a Chinese-American and Wharton School graduate, was hired by Alibaba in late 2012 as senior vice president, heading the corporate finance division, and was tasked with planning what has become the most anticipated IPO since Facebook.

A keen skier who spends downtime on the slopes at Whistler in Canada or Hokkaido in Japan, Yao has a close relationship with Joe Tsai, Alibaba’s former chief financial officer and a co-founder of the company with Jack Ma.

Tsai is the IPO’s architect, Yao its deliverer - delicately navigating the process to avoid the missteps taken by Facebook, whose shares tumbled more than a third in their first month of trading, triggering legal suits and compensation payouts.

“He’s a well-rounded guy who has a lot of experience with IPOs and equity capital markets from all sides - from the issuer side and from the bank side,” said Philippe Espinasse, a former UBS and Nomura investment banker in Hong Kong who worked with Yao on MTR Corp’s $1.4 billion IPO in 2000 and other deals.

“Not only has he worked on the investment banking side, structuring and selling deals, but at Rothschild he was also involved on the other side of the table, working on the corporate side and dealing with the bankers.”

NO BIG EGO

Some of those who have worked with Yao say he is level-headed, and doesn’t hesitate to roll up his sleeves. While he is easy going and not ego-driven, he can be very firm, though not in a confrontational way, they added.

He is also well-connected in Hong Kong after a long banking career in the city and through family ties. His wife is the granddaughter of the late Tung Chao Yung, founder of Orient Overseas Container Line (OOCL), one of the world’s largest container transport and logistics companies. Her uncle is Tung Chee-hwa, Hong Kong’s first head of government after Britain handed back sovereignty to China in 1997.

Yao joined Goldman Sachs in New York in 1990, straight from the Wharton School at the University of Pennsylvania, where he graduated with an economics degree. He moved to Hong Kong with the Wall Street bank in 1993, handling large Chinese and Hong Kong IPOs such as MTR’s listing and BOC Hong Kong (Holdings) $2.8 billion offer in mid-2002.

From multi-billion-dollar deals, Yao switched focus to small-and medium-sized issuers for about three years, founding ARX Advisors Ltd, a boutique investment firm, in 2003, before moving to DBS Group as head of equity capital markets for DBS Asia Capital. He joined Rothschild in 2006.

There, he helped bring the Alibaba.com business-to-business unit public, and led talks to take it private again five years later. Yao also advised Alibaba on a series of acquisitions in the United States and China during that period. More recently, he helped Alibaba structure $12 billion of loans to bulk up its warchest to fund a spate of takeovers and a $7.1 billion share buyback from Yahoo Inc.

Yao declined to be interviewed for this article, Alibaba spokeswoman Florence Shih said. Most of those cited in this article didn’t want to be named to avoid straining personal ties with Yao or Alibaba.

CATCHING UP

Most of Yao’s 23 years in banking have been in equity capital markets and mergers and acquisitions, so when Alibaba needed to borrow money in 2012 to buy back Yahoo’s stock in the company he had a lot of catching up to do - holding lengthy talks with debt and loan specialists from Rothschild’s team in London and meetings with lenders over terms and covenants that took “many, many long hours into the night,” said those familiar with the discussions.

A $4 billion financing package - the largest for a private sector Chinese company at the time - caused some tension between Yao and loan bankers.

“These were banks with different appetites for doing the transaction. Some were more difficult, some were easier on some situations on pricing and terms,” said a person with direct knowledge of the talks. “He did a pretty good job, putting together a good deal without ruffling too many feathers.”

Last year, Yao negotiated “an even better deal” for Alibaba with an $8 billion loan with a group of nine banks, the person added.

“He’s a good mix of Western-trained and thinking banker, who is sensitive and culturally understands China. That mix is not that common in China’s banking space. That’s a pretty strong point,” said one of those who has worked with Yao.